World demand outlook for dry bulk commodities Olle Östensson

Global short and medium term demand
outlook for major dry bulk commodities
Olle Östensson, Caromb Consulting
Bulk Ports, Terminals & Logistics 2012,
20-22 May 2012,
Amsterdam, The Netherlands
Outline of presentation
•
•
•
•
•
•
•
A weak recovery
New recession in developed countries
Considerable downside risks
Slower growth in emerging countries
Iron ore
Coal
Grains
A weak recovery
IMF reduced its projections in January and raise
them again in April
(annual rate of growth in GDP)
10
8
6
World
4
Advanced economies
2
0
2007
2008
2009
2010
2011
2012
2013
Emerging and developing
economies
-2
-4
-6
Source: IMF, World Economic Outlook, April 2012
The imbalances that contributed to the
financial crisis are still here, and they
are growing larger
1.8
China’s current account surplus, per cent of advanced
countries’ GDP
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: IMF World Economic Outlook Database
Limits to growth in developed
countries
• United States:
– Jobs growth “out of sync” with recovery
– Need to reduce budget deficit in medium term
• Euro area
– Questionable management of debt crisis
– Effects of fiscal austerity
– Bank deleveraging
• Japan
– Loss of income from earthquake and tsunami damage
– Higher energy costs
– Need to reduce debt levels in the medium to long term
4
The largest risks are in the Euro
area: the base case is mildly
optimistic
2
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
-2
-4
GDP change
Inflation
Government net
lending/borrowing, % of GDP
-6
-8
Source: IMF World Economic Outlook Database
Government debt is expected to
stop growing as % of GDP
92
90
88
86
84
82
80
78
76
74
2009
2010
2011
2012
2013
2014
Source: IMF World Economic Outlook Database
2015
2016
But there are alternative,
worse scenarios:
If concerns about fiscal sustainability force a more rapid fiscal
consolidation, demand would fall. Bank losses on sovereign debt
holdings and on loans to the private sector would lead to
tightening credit
0
-0.5
Deviation from base case, quarterly change in GDP
2012q1
2013q1
2014q1
2015q1
2016q1
-1
-1.5
-2
-2.5
World
Euro area
-3
-3.5
-4
-4.5
Source: IMF, World Economic Outlook Update, January 2012
Emerging economies are
losing steam
• The Euro crisis, together with slow recovery in
the United States, means that demand for
emerging economies’ exports is growing
slowly
• Domestic overheating requires cutbacks in
government expenditure (or should do so)
• Higher oil prices squeeze growth
Slowdown in China – although
still solid growth
16
14
12
10
8
GDP growth
6
Inflation
4
2
2017
2015
2013
2011
2009
2007
2005
2003
-2
2001
0
Source: IMF World Economic Outlook Database
• Inflation now appears to be
under control
• Housing boom is slowing
down
• But China is entering a
period of economic
reorientation with more
focus on consumption, less
on exports and investment
• Export markets are not
growing as fast as before,
and production costs are
rising in China
• For demographic reasons,
growth will be slower (the
labour force stops growing
in 2015)
Similar outlook for India
14
1
12
0
10
-1
8
-2
6
4
2
0
GDP change
Inflation
-3
-4
Government
net
lending/borro
wing
Current
account
balance
-5
-6
• Growth in India may be constrained by government spending and reluctance to
remove domestic obstacles to competition and growth
Source: IMF World Economic Outlook Database
…and for Brazil
8
Inflation is the main threat to growth and the government
needs to restrain spending
7
6
5
4
GDP change
Inflation
3
2
1
0
-1
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: IMF World Economic Outlook Database
Oil price increases: how much
of a break on growth?
• Inflationary tendencies mainly in emerging and developing
countries, where energy accounts for a larger share of
consumption
• Much less impact in developed countries, where there is still
much more slack and lower inflation expectations
• However, the recovery is fragile and a surge in oil prices,
brought on by geopolitical factors, could bring it to a halt
Oil supply: No need to worry(?)
Call on OPEC crude (total crude demand minus non-OPEC
production), Million barrels/day
32
31.5
31
30.5
30
29.5
29
28.5
28
27.5
27
26.5
Source: International Energy Agency: Oil Market Report, 14 March 2012
Conclusion on the macroeconomic outlook
• The recovery is under way, but it is weak and
fragile
• The greatest risks are in the Euro zone, where
too much austerity combined with bank
deleveraging could trigger a downward spiral
– and where Greece might drag other
countries with it when going down
• Emerging economies have their own problems
and cannot be relied on to pull the world
economy into strong growth
Short term outlook: Iron ore (1)
Crude steel: World
monthly production, Mt
140
120
100
80
60
40
20
Source. World Steel Association
January 2012
September
May
January 2011
September
May
January 2010
September
May
January 2009
September
May
January 2008
0
• World steel production increased
by 5.5 % in 2011; the rate of
growth will be slower this year, at
3-4 %
• China will – again – have to
account for most of market
dynamism.
• In spite of the expected economic
slowdown, Chinese steel demand
will grow by at least 4.5 % this
year
Short term outlook: Iron ore (2)
China: imports’ share of •
iron ore use growing
80.0
70.0
•
60.0
50.0
40.0
30.0
20.0
•
Iron ore
imports
Crude steel
production
•
10.0
January 2008
July
January 2009
July
January 2010
July
January 2011
July
January 2012
0.0
Sources: World Steel Association,
China Metallurgical Newsletter, TEX Report
•
Chinese crude steel production was a
record 684 Mt in 2011 (increase by 9 %).
The rate of increase is slowing, but
production will approach 715 Mt this year
Iron ore imports increased by 11 % in
2011, helped by more flexible pricing
Inventories increased in 2011, probably
by about 15 Mt – but have declined in the
first half of 2012
Domestic iron ore production (run of
mine ore) increased by 24 % in 2011. Ore
grades declined precipitously, however,
and if converted to standard grade,
production was probably constant despite high prices
Chinese iron ore imports in 2012 will
exceed 700 Mt and probably reach 725
Mt
Short term outlook: Iron ore (3)
• Chinese imports up by 40 Mt in 2012
• Imports in rest of world up by maybe 30 Mt, with
increases mainly in Asia (Japanese imports fell by 8
Mt in 2011 and will bounce back as reconstruction
gathers speed) and North America
• Total rise in seaborne trade of 70 Mt in 2012 – about
the same as in 2011, but more equally distributed.
The longer term
30
Two tendencies will
influence Chinese iron ore
increase gdp
imports:
• Falling steel intensity
increase crude steel
as the economic
production
reorientation gets
under way
• Increasing share of
imports as domestic
mines are forced to
close
25
20
15
10
5
0
1994 1996 1998 2000 2002 2004 2006 2008 2010
Sources: IMF World Economic Outlook Database and World Steel Association
Short term outlook: Coal (1)
• The focus is still on Asia, but US thermal coal exports are increasing as coal
gets pushed out by gas on the domestic market. As much as 70 Mt of coal
could get squeezed out, with a portion being exported, contributing to
depressed prices in the Atlantic basin. Most of the export increase took
place in 2011 (+10-15Mt).
• Due to the uncertain economic outlook, demand is weak in Europe
• China’s imports of both thermal and metallurgical coal fell in 2011, but
increased in Q1 2012
• Japan’s imports also fell in 2011 – electricity from closed down nuclear
reactors was replaced by natural gas rather than by coal – but recovered in
Q1 2012
• Indian imports of thermal coal are growing rapidly, due to failure to
increase domestic output
Short term outlook: Coal (2)
200
Imports into China and Japan declined in
2011, but will pick up in 2012, imports
into India growing
180
160
140
120
100
Metallurgical
80
Thermal
60
40
20
0
China
India
2010
Japan
China
India
2011
Japan
Short term outlook: Coal (3)
• Thermal coal demand in Asia is expected to recover in 2012,
helped by low prices
• Elsewhere in the world, slow economic growth is limiting
demand
• Exports from Australia and Indonesia are expected to pick up
• Total growth in thermal coal trade in 2012 is expected at
about 60 Mt, almost all in Asia
• Demand for metallurgical coal will follow steel demand,
growing by 3-4 %
• Seaborne trade will grow by more, close to 10 % or 25-30 Mt,
because of strong increase in imports into China and India
• As a result, seaborne trade of coal is likely to increase by 8590 Mt in 2012
Short term outlook: Grains (1)
World grain production and
consumption, Mt
1,900
1,850
1,800
1,750
1,700
1,650
1,600
1,550
1,500
1,450
1,400
Production
Consumption
Is the food crisis over?
• The forecast is for record
harvests in both 2011/2012
and 2012/2013
• A large portion of the
increase will be accounted
for by feed grains
• The growth in industrial
consumption is expected to
slow down as ethanol
demand stalls in the US
Source: International Grains Council: Grain Market Report, 26 April 2012
Short term outlook: Grains (2)
450
Grain trade and stocks
400
350
300
250
200
150
Trade
Stocks
• Trade volumes are expected to
increase by 15-20 Mt in
2011/2012 and to continue
increasing in 2012/2013
• Stocks are forecast to stay flat, at
levels that do not raise
immediate fears about food
security
100
50
0
Source: International Grains Council: Grain Market Report, 26 April 2012
Overall conclusions
• Assuming that the macro-economic risks are
managed...
• 2011 will see significant growth in dry bulk
commodity trade, with total volume
increasing by 180-190 Mt
• Iron ore and coal each contribute almost half
of the increase, and China alone accounts for
roughly half the additional trade
THANK YOU!
[email protected]